From the Globe and Mail:
Canadian banks cut interest rates dramatically yesterday after the Bank of Canada slashed its main rate by half a percentage point and warned that a serious economic slowdown was only just beginning.
All major banks cut their prime lending rate by 50 basis points, amid a central bank warning that Canada faces a tough two years. A troubled U.S. economy has hit exports hard, and undermined business and consumer confidence, the bank said.
Marking the most serious cuts since the post-9/11 downturn, the bank has now cut rates twice in six weeks. Its key rate now stands at 3 per cent, 150 basis points lower than where it stood last fall. (A basis point is one one-hundredth of a percentage point.)
“The bank is now projecting a deeper and more protracted slowdown in the U.S. economy,” it said in a release. “This has direct consequences for the Canadian economic outlook, with declining exports projected to exert a significant drag on growth in 2008.”
Will these recent rate cuts boost our market further or prevent a downturn? Certainly dropping rates is a way to discourage saving and encourage taking on more debt, but is the central bank in danger of kicking up inflation? So far rate cuts and fiscal stimulus plans in the US have done little to stem dropping house prices and a sputtering economy.
